Cramer: Health Insurance Tips for the Unemployed, Part I


I'm an optimist, but I'm a realist, too.

Like the old saying goes, the pessimist complains about the wind; the optimist expects it to change; but the realist adjusts the sails.

That's true in a lot of ways, especially from a financial point of view.

You can be upbeat about the stock market, for example, but if you don't do your homework and pick the right stocks, you won't earn the big profits. That's something I talk about every day on Mad Money.

It's the same deal for an increasingly pessimistic environment – the job market. Since December, 2007, about four million Americans have been given pink slips, with more job cuts undoubtedly on the way. Being an optimist, I believe the employment picture will brighten, probably in a year or so. But the realist in me wants to deal with the situation on the ground once you're unemployed.

In fact, there is so much to say about having health insurance when you're unemployed: how important it is, how to get good coverage, and  how to pay for it, among other issues - that I'm going to devote two columns to the topic.  Here, in part one, I'll discuss the critical nature of health insurance and how  COBRA might ease your way into your next job from a health insurance point of view.

Make no mistake, having health insurance isn't a luxury - it's a necessity.  Consequently, job one when you find yourself unemployed is finding good health insurance. According to the Kaiser Commission on Medicaid and the Uninsured, we have more than 48 million uninsured Americans. Worse, if the unemployment rate rises by a full one percent (it's at 7.2% right now), the unemployment number will rise by one million.

That's going to leave a load of Americans - and a lot of our kids - vulnerable to a health care system that severely penalizes anyone who gets sick or injured but who can't pay the bills.

I don't want to see that happen, so let's figure out some creative ways to keep health care insurance, preferably at lower-cost group rates during unemployment. That way, we can keep our families protected until the job market picks up again.

Uncoiling COBRA
First, the basics. Uncle Sam offers most Americans who lose their jobs an opportunity to keep their health care going through COBRA.

What's COBRA? It's the acronym for the Consolidated Omnibus Budget Reconciliation Act (COBRA), which Congress passed back in 1986. Plain and simple, COBRA's mission is to provide continuation of group health coverage for American workers who lose their jobs. It's pricier than health coverage for active employees, but that's only because employers pay health coverage costs for active workers, while COBRA participants pay their own freight. (For a good summation of how COBRA works and what it offers, visit the U.S. Department of Labor's COBRA web site.) The big health care companies, United Health, Wellpoint (Stock Quote: WLP), Aetna (Stock Quote: AET), Cigna (Stock Quote: CI), have all been trying to hike rates up over time but the political environment may not make that possible.

Generally, your old company runs your COBRA program, charging you the full cost of premiums plus a 2% administrative fee. For up to 18 months after your job expired, you can rely on the same health care benefits that you had as an employee. But, you need to act fairly quickly - you only have 60 days after losing your job to contact your old employer and sign up for COBRA.  All in all, I wouldn't call it a great deal - COBRA can really eat into a family's budget during an extended period of unemployment -- but the option of having no health insurance really isn't an option at all. Let's say you roll the dice and go without health care after a job loss. Just a trip to the doctor is going to cost a few hundred bucks, and minor surgery will set you back $2,000 or $3,000.  Plus, if you wind up with a real health emergency, any future health coverage provider is going to charge you more in your next policy, citing your expensive "pre-existing condition".

Still, when you opt for COBRA, at least you're getting a group rate, as opposed to striking out on your own for individual private health insurance. One word of caution: in this day and age, with so many companies like Circuit City going belly up, the U.S. Dept. of Labor notes that COBRA isn't an option if your company closes down or goes bankrupt.

All in all, COBRA is easy to use, if a bit pricey for my blood. But if all you're looking for is continuing coverage with the plan you had, and you're in reasonably good health, COBRA probably fits the bill.

Tomorrow, in Part II, I'll examine other ways of getting good health care coverage when you're unemployed.

Brian O'Connell contributed to this article.

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